Joint Memorandum from the British Bankers'
Association and the Association of British Insurers
1.1 The Association of British Insurers and
the British Bankers' Association welcome the invitation of the
Joint Committee to comment on the Treasury Memorandum on Human
Rights Issues raised by the draft Financial Services and Markets
Bill. The comments below are made in the light of the Treasury
Memorandum and of the comments made by the Economic Secretary
to the Treasury and Counsel in evidence to the Joint Committee
on 19 May.
1.2 The proposals set out by the Treasury provide
safeguards for those suspected of market abuse and are a welcome
step towards allaying our concerns that the draft Bill could be
incompatible with the European Convention on Human Rights (ECHR).
We believe that the FSA should provide equivalent safeguards for
those involved in internal disciplinary proceedings to ensure
that a challenge on human rights grounds cannot be sustained,
a possibility which would bring the FSA's authority into disrepute.
1.3 It will still, however, be important to
draw a distinction between criminal proceedings, the exercise
of the FSA's market abuse fining power and the internal disciplinary
process so that the last, in particular, does not become overly
legalistic in a way which inhibits the FSA's ability to regulate
effectively by making it incapable of delivering speedy decisions
at an acceptable cost.
2. MARKET ABUSE
2.1 The new civil power to fine for market abuse
is additional to the existing criminal offences of insider dealing
and market manipulation. We note that the Treasury recognises
there is a possibility that the market abuse fining power may
be classified as criminal for Convention purposes and are pleased
to see that the Treasury is proposing changes to the Bill to ensure
compliance with the ECHR.
2.2 We welcome the intention to explore providing
subsidised legal assistance in appropriate cases. It is not entirely
clear from the Treasury's Memorandum whether such assistance will
be available in both market abuse and disciplinary actions and
we would welcome confirmation that it is the intention to cover
all hearings before the Tribunal.
2.3 We also welcome the intention that compliance
with the Code of Market Conduct will be an absolute defence against
proceedings for breach of the market abuse legislation. We would
encourage the Government also to introduce explicit protection
for people who take reasonable steps not to breach the primary
provisions, which, as noted in the Progress Report (13.7), do
not by themselves provide sufficient certainty as to the application
of the regime.
We would also encourage the FSA to provide
the same assurance that those who have complied with specific
rules, codes and guidance will not be pursued for alleged breaches
of the FSA's Principles for authorised and approved persons.
2.4 There is as yet no definition proposed for
"market participant", although there was discussion
at the hearing on 19 May of the scope of the definition. In particular,
the extent to which off-market activity is intended to be caught
needs to be clarified, as does the concept of abuse by inaction
set out in Clause 58(b) of the draft Bill. As organisations representing
major investors and traders, we recognise the importance of maintaining
the high reputation of the markets and protecting legitimate activities.
Therefore, provided adequate safeguards against abuse of the regime
are in place, we would welcome a definition sufficiently wide
to encompass all active market participants.
3.1 We note the Government view that the disciplinary
provisions of the Bill are likely to be classified as the determination
of civil rights and obligations for the purposes of the Bill.
In our view, the arguments put forward by the Government put too
much weight on the restricted community involved and do not take
into account the way in which a disciplinary fine on an individual
can effectively deprive them of the ability to earn a living in
their chosen field. Whatever the eventual classification of this
regime, we consider that the disciplinary regime adopted by the
FSA should be compatible with basic standards of fairness and
with the ECHR.
3.2 Proceedings under the discipline provisions
are essentially administrative in nature, and it is important
that the process should be accessible in terms of both process
and cost. Individuals may need more protection than large firms.
The challenge faced by the FSA is to put in place a process that
meets both the requirements for certainty and simplicity. One
possibility would be to require the Treasury to provide guidance
on the fairness of the FSA processes.
3.3 The penalties imposed should be proportionate
both to the nature of the offence and the circumstances of the
accused. We welcome the clarification that non-payment of a fine
will not punishable by imprisonment.
3.4 We further note that the use of compelled
evidence under the disciplinary regime is unclear. If disciplinary
proceedings are considered to be civil in nature, compelled evidence
will be admissible at the stage of consideration by the Enforcement
Committee. If the Tribunal is considering a criminal case, the
Treasury Memorandum makes it clear that such evidence is inadmissible.
However, if a disciplinary case is referred to the Tribunal, operating
as an Administrative Tribunal, it is unclear whether compelled
evidence could be used. Clearly, if it is not admissible, there
will be a strong incentive for those accused of disciplinary offences
to take cases to the Tribunal, which will reduce the likelihood
of settlement at earlier stages, and add to the cost and time
involved in the process.
21 May 1999